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Tuesday, 3 March 2015

Emirates Airline flies flag for sukuk

Emirates Airline is leading issuers of Islamic bonds back to the market, reviving a year in the throes of its worst start since 2010.
Emirates, the world’s biggest airline by international passenger traffic, plans to sell US$1 billion of Sharia-compliant notes this quarter, two people familiar with the matter say. Petroliam Nasional, the Malaysian state oil company known as Petronas, is seeking to raise as much as $7bn in the largest sale of dollar-denominated sukuk. The Islamic Development Bank will meet investors from this week before a possible issue.
Global sales of Sharia-compliant debt have slumped more than 70 per cent this year amid a plunge in crude prices. The drought underscores the industry’s dependence on sales from the GCC, home to a third of the world’s proven oil reserves, where borrowers have been delaying offerings, according to Mashreq Capital DIFC.
“Issuers are waiting for the oil price to stabilise,” says Abdul Kadir Hussain, the Dubai-based chief executive of Mashreq, which runs the two best-performing Islamic fixed-income funds in the Middle East and Africa over the past year. “If they came in an environment where the prices are unstable, investors would either demand a higher risk premium or they may not look at the deal.”
About $1.8bn of sukuk have been sold globally this year, compared with $6bn for the same period a year ago, according to data compiled by Bloomberg. Brent crude has risen more than 25 per cent since January 13, after declining by about 50 per cent last year as the fastest US production in three decades helped trigger a global glut and Opec maintained output.
“Activity will pick up markedly over the coming weeks,” says Andy Cairns, the global head of debt origination and distribution at the National Bank of Abu Dhabi, the GCC’s biggest regional bond underwriter in 2014. “We have a strong mandated pipeline, both traditional sukuk issuers and debut names, from the region and outside.”
NBAD is one of the banks mandated to arrange Islamic Development Bank’s investor meetings. The Saudi Arabia-based bank, Emirates and Petronas are all established sukuk issuers. Sales in 2014 reached $46.3bn as the market expanded with debut sovereign sukuk sales from the United Kingdom, Luxembourg, Hong Kong and South Africa.
A rebound in sales probably will not be enough to erase the slow start, according to Richard Segal, the head of emerging- market credit strategy at Jefferies International.
“I would be very surprised if we approach last year,” Mr Segal says. “Corporates as a whole, there isn’t that much appetite. They are turning to go to the banks instead of the bond markets.”
Dubai Islamic Bank’s $1 bn Tier 1 sukuk is the only dollar-denominated Islamic bond sold this year, according to data compiled by Bloomberg. For the first time since 2009, there have been no non-financial corporate bond sales at all in the GCC.
“Now we’re seeing some sort of stability, you’re going to start seeing more issuance,” Mr Hussain says. “From what I’m hearing in the market, the pipeline is pretty strong.”
Meanwhile, Indonesia’s state-owned airline plans the nation’s first corporate global sukuk sale to tap dollar wealth in the Middle East and cut funding costs.
Garuda Indonesia, which uses the national symbol of a mythical eagle as its insignia, may issue $500 million of US currency Sharia-compliant debt in April, widening its investor base, says the finance director Askhara Danadiputra in Jakarta. Emerging-market dollar bonds yield an average 6 per cent, compared with 7.1 per cent for rupiah-denominated notes, JP Morgan indexes show.
Garuda will set a precedent for Indonesian companies after the government sold its first international Islamic bonds in 2009. The investment-grade offering may attract buyers in the GCC. The region accounted for 32 per cent of the $46bn total sales last year versus 49 per cent in 2013, reflecting declining crude prices that have benefited airlines.
(The National Business / 01 March 2015)
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The ownership and control of Islamic banks in Pakistan

There are five Islamic banks operating in Pakistan and it should be interesting to find out who owns and eventually controls them. 

To any keen observer of Islamic banking, it should not come as a surprise that the significant shares of paid-up capital actually comes from the high net worth families and institutions in the Middle East, especially the six countries comprising the Gulf Cooperation Council (GCC).
A non-academic investigation into the networks that control Islamic banks in Pakistan reveals that it is not only the shareholders, but others as well who exert their influence and control.
The first table shows that there are six countries, Kuwait, Saudi Arabia, UAE, Bahrain, UK and Singapore, from where individuals and institutions have invested in the five fully-fledged Islamic banks in Pakistan.
Though Malaysia’s Maybank has invested in MCB to have an influence on the development of Islamic banking in Pakistan, especially in the wake of MCB’s awaited Islamic banking subsidiary, Malaysian investors have been reluctant to invest in Islamic banking in Pakistan. This is an important exclusion, given that Malaysia, otherwise, is a major player in the global Islamic financial services industry.
It should be obvious that Islamic banking in Pakistan is controlled by governments (Kuwait), institutions (Dubai Islamic Bank, Al Baraka Bank, Bank Alkhair and Islamic Development Bank) and some individuals. The objective of this control function is purely business since the shareholders would like to preserve their capital and ensure maximum return on their investments.
One thing that is not so explicit from the above information is the fact that almost all of these banks are advised by the graduates of Darul Uloom Karachi, Jamiatul Uloom Islamia Binnori Town Karachi and Jamiatul Rasheed Karachi – well-known religious seminaries of Deobandi school of thought.
Overall, the Shariah advisory input comes from local as well as foreign Shariah scholars. Burj Bank is the only Islamic bank that has representation of Brailvi school of thought on its Shariah board. Table below lists the Shariah advisors of the five Islamic banks in Pakistan, and their religious affiliations.
The Deobandi school of thought dominates Islamic banking in Pakistan. It is fair to say that State Bank of Pakistan (SBP) has adopted a Shariah regime that tries to dilute the control of any particular school of thought or institution on Islamic banking.
As a vast majority of Muslims in Pakistan belong to Barelvi school of thought, it is important to create more awareness of Islamic banking by way of engaging more of the seminaries run by Barelvi scholars.
The above argument in no way should be taken against Darul Uloom Karachi or Sheikh Taqi Usmani, as both of them have played an instrumental role in the development of Islamic banking not only in Pakistan but also in other parts of the world.
Also, the argument here should not be deemed as an attempt to accentuate religious sectarian differences. In fact, Islamic banking and finance on a global level has helped dilute the juristic divide across different schools of thought. Bringing more Barelvi scholars into the domain of Islamic banking will help in creating harmony across different religious sects.
One particular institution that has advocated Islamic banking on academic and intellectual levels is International Islamic University Islamabad (IIUI). Its exclusion from Shariah advisory function at the level of Islamic banks can perhaps be explained with the geographical location of Pakistan’s financial district where SBP is located and all of the Islamic banks are headquartered.
In Islamabad, on the other hand, where Securities and Exchange Commission of Pakistan is based, there is adequate representation of IIUI both at institutional and regulator levels.
Inclusion of courses on banking and finance into the curricula of religious seminaries should only be beneficial for the graduates of such institutions. Islamic banking is growing in Pakistan and any religious seminary that reforms its curriculum to accommodate teachings of Islamic banking and finance is poised to benefit from this growth story.
The employment opportunities in Islamic banking and finance are not limited to Pakistan. In fact, a considerable number of graduates of IIUI are serving Islamic financial institutions in other parts of the world, especially in the Middle East.
Preparing students of religious seminaries for a vocation in Islamic banking and finance has far reaching economic, social and religious benefits. Therefore, it is important that the government initiates a nation-wide drive to create awareness of Islamic banking and finance in the religious seminaries. The SBP in this respect can lead a drive for promoting Islamic financial literacy in religious educational establishments in general and the amongst masses in particular.

(The Express Tribune / 01 March 2015)
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